COLOGNE-ROTTERDAM

EXECUTIVE MBA 2024

BUSINESS ANALYTICS

PROBLEM SET 3
Exercise 1

Simple exponential smoothing (with  = 0.2) is being used to forecast monthly beer sales at Gordon’s Liquor
Store. After observing April’s demand, the predicted demand for May is 4,000 cans of beer.

(a) At the beginning of May, what is the prediction for July’s beer sales?

(b) Actual demand during May and June is as follows: May, 4,500 cans of beer; June, 3,500 cans of beer. After
observing June’s demand, what is the forecast for July’s demand?

(c) The demand during May and June averages out to (4,500 + 3,500)/2 = 4,000 cans per month. This is the
same as the forecast for monthly sales before we observed the May and June data. Yet after observing
the May and June demands for beer, our forecast for July demand has decreased from what it was at the
end of April. Why?

Exercise 2

We are using simple exponential smoothing to predict monthly electric shaver sales at Hook’s Drug Store. At 1
the end of October 2017, our forecast for December 2017 sales was 40. In November 50 shavers were sold,
and during December 45 shavers were sold. Suppose = 0.50. At the end of December 2017, what is our
prediction for the total number of shavers that will be sold during March and April 2018?

Exercise 3

Simple exponential smoothing with  = 0.3 is being used to predict sales of radios at Lowland Appliance.
Predictions are made on a monthly basis. After observing August radio sales, the forecast for September is
100 radios.

(a) During September, 120 radios are sold. After observing September sales, what is the prediction for
October radio sales? For November radio sales?

(b) It turns out that June sales were recorded as 10 radios. Actually, however, 100 radios were sold in June.
After correcting, for this error, what would be the prediction for October radio sales?
COLOGNE-ROTTERDAM
EXECUTIVE MBA 2024

BUSINESS ANALYTICS

Exercise 4

A large retail organization is currently investigating a number of areas of its operations with a view to
improving performance in terms of efficiency, sales and profits. The organization has been monitoring the
monthly sales of one of its more profitable products for the last few years with a view to trying to forecast
future demand. Someone in the organization has applied time-series analysis to the monthly sales figures
and calculated both the trend and the seasonally adjusted sales figures for the first five months of the current
year (the latest available). These are shown in the table below.

Month Actual sales Trend Seasonally-adjusted sales

Jan 63 78.50 76.3

Feb 85 80.88 80.7
Mar 100 83.88 84.5
Apr 81 85.88 87.5
May 89 86.47 88.6

Unfortunately, the person who completed the analysis has left the company and none of the senior managers
understands the information provided. You have been asked to provide a short briefing report to
management.

a) Explain in the context of the application what is meant by time-series analysis and why it is important. 2
b) Explain why the actual sales figures and of little value by themselves for forecasting purposes.
c) Explain what is meant by seasonally adjusted sales and how this information could be used.